[GAM]Wall Street, Apple’s’Ica’ with “high cost and low margin” vs. “long-term global opportunity”

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[서울=뉴스핌] Reporter Wonjin Choi = Wall Street investment banks showed various reactions to Reuters reports that Apple (Nasdaq: AAPL) could start producing electric vehicles from 2024.

In 2014, former Apple board member Mickey Dexler, CEO of Gap, argued that “if Steve Jobs had been alive, he would have designed iCar.” He recalled that Jobs had been crazy about Tesla cars.

Some experts at Wall Street IB see the auto market as a new big market for Apple to grow, while others are concerned that Apple may face the reality of a lower gross margin compared to its massive initial investment.

Apple logo. 2020.12.23 [사진=로이터 뉴스핌]

◆ Skeptics “low-margin business, high development costs”

According to CNBC News reported on the 22nd, skeptics of entering the Apple automobile business said that the company is basically based on selling premium computers, mobile phones, and accessories such as chargers and wireless earphones for these products. It is a business of the company, and a huge investment is required to successfully manufacture a car.

In addition, there are also the perspectives of researchers who consider Apple as a research project rather than actually developing automobile products.

“Apple is doing research and development (R&D) in a number of areas,” Citi researcher Jim Suva said in a note. “It’s relatively much lower, so I’m very skeptical about whether Apple will actually start making cars.”

According to Reuters,’Project Titan’ is an autonomous vehicle project that Apple has been preparing since 2014, and it has undergone changes such as being reduced to focusing only on the development of autonomous driving software. After the news of Tesla’s engineering vice president Doug Field in 2018 returned to Apple in five years and fired 190 people the following year, little news about Project Titan was heard.

Reuters alone reported that Apple is aiming to produce passenger cars equipped with self-developed batteries by 2024. Sources say that Apple’s Project Titan has made progress and can now target the production of consumer cars.

The company’s vehicles are being charged at Tesla’s high-speed electric vehicle charging facility in Bonn, Germany. [사진=로이터 뉴스핌]

Evercore researcher Amit Daryanani raised doubts about whether Apple would enter the low-margin, capital-intensive automobile business. However, he added that if the company succeeds in developing breakthrough batteries or autonomous driving technology, the project is worth progressing.

◆ Optimists “Trillion Dollar Market, Long-Term Global Opportunity”

On the other hand, some researchers welcome Apple’s entry into the automotive business. Apple iPhone sales haven’t been steadily increasing in recent years, but now there are voices that the company needs to diversify its business model into large markets such as automobiles.

Morgan Stanley researchers argue that the reason Apple wants to enter the automotive market is not simply because it wants to make money from selling cars and parts, but because the time of the people on board Apple cars can be money. Researchers Adam Jonas and Katie Huberty explained that the combined amount of time Americans spend in a car in a year is estimated at 600 billion hours.

In this day’s note, Baird’s William Power researcher nailed the car as a multi-trillion-dollar global market, “an enormous long-term global opportunity.” Tesla sales this year is expected to increase by 40% from the previous year to $42.2 billion, and Apple-branded electric vehicles can also achieve such growth.

In addition, Apple is one of the few electric car makers with tremendous cash holdings and the ability to hire the best tech talent. In addition, there are many opportunities for Apple to benefit from the automobile industry, where computer and software technologies are becoming increasingly important for electric vehicles and autonomous vehicles.

“Cars are rapidly becoming’computers with wheels.’ Apple’s software, silicon, and electronics will be very useful if you work with companies like Magna (NYSE: MGA),” said Daryanani. . Magna is the world’s third largest auto parts maker.

◆ The key is the profit model

The biggest question among Wall Street analysts is how Apple will monetize its automotive projects. It could be selling Apple-branded cars, or selling mobility services and licensed software to other automakers.

Morgan Stanley researchers believe that Apple is not directly competing with automakers. Instead, Apple aims to provide a better driving experience by selling its designs and software chips to other automakers, and expects to be able to monetize it using current service subscriptions and service product metrics.

Jean Munster, a longtime Apple analyst and founder of Loop Ventures, argues that it seems that Apple has not yet decided which way to go. In his note, he stated, “Apple can find a big market where competitors have already made progress, and a few years later, it can appear like a comet and create a sensation.”

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